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Out Innovating Takes Education Spending

September 19, 2011 By John R. Van Hecke, Executive Director & Fellow

While conservatives extol a low tax climate as business development’s Holy Grail, in actuality one of the most important factors businesses examine when relocating or expanding is workforce quality. That actually takes investment, but it pays big.

Overall, Minnesota is doing well in the education category. Even with Minnesota retreating from its education funding obligation—by 2013, real per pupil state aid to schools will have dropped nearly 13 percent over the decade—our workforce remains a highly skilled asset to businesses, relative to the nation.

Minnesota ranks second in the percentage of the population with high school degrees and 11th in bachelor degrees. The aggregate and per capita number of graduates with science and engineering degrees both rank in the top 20, according to data from DEED and other public sources. High tech businesses are more likely to invest in states which provide access to a technologically proficiency workforce.

Furthermore, Minnesota also scores highly in basic academic skills, ranking in the nation’s top ten when it comes to science, reading, and math proficiency in eighth grade. Minnesota’s eighth grade science scores are 16 percent above the national average, while reading and math are 6 percent and 9 percent above the national average respectively.

Traditionally, Minnesotans have credited public investments in education for this strong performance.

It’s no coincidence that level of educational attainment is closely linked to a state’s workforce quality. This high educational achievement also correlates to other key business advantages, such as being a leader in utility patents (9th) and medical device patents (2nd).

One educational ranking should cause concern. If we don’t improve education spending, it will have serious implications for all of the other innovation and education rankings. While still higher in this category relative to the nation at 15th, Minnesota has lost ground since 2002.

From FY 2002 to FY 2008, Minnesota per capita education spending dropped from 9 percent above the national average to 4 percent above, according to combination of public fiscal data.

When adjusted for inflation, per pupil state aid to schools will have declined by 12.8 percent from school year 2002-03 to 2012-13. Total per pupil school revenue, including local levies, will have declined and inflation-adjusted 3.2 percent* over that time frame, according to the Minnesota Department of Education.

While many school districts are using levies to overcome state funding shortages, a significant number of districts are still severely underfunded, especially those whose tax base isn’t large enough or isn’t willing to pass a levy. This might not have an immediate impact on Minnesota’s overall rankings relative to other states, there could be communities unable to overcome state funding shortfalls in academic achievement, creating pockets of lesser trained workers with in the state.

We can’t rest on past progress. Prolonged underfunding will have severe consequences on statewide achievement rankings.

While state leaders need to be mindful of taxes in attracting new companies or convincing existing companies to expand, they also need to maintain public investment in education, which is the cornerstone of a productive economy and a prosperous society.

It seems, though, conservatives want to take us the low-tax, low-wage economic development rout.

“No-new-taxes” policy might seem attractive, but when the lack of investments’ outcomes start to materialize, companies needing highly skilled workers won’t stick around very long. Minnesota companies might attract workers from other states to fill the short-term skilled labor shortage, but eventually, if Minnesota’s workforce doesn’t keep pace, firms will look to expand in markets with available skilled work forces.

*Inflation measured using the implicit price deflator for state and local government purchases.

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